Rumour reaches me that companies in Gibraltar are now advertising a VAT abuse service almost identical to that closed down by the UK that operated through the Channel Islands in April this year.
As I understand it goods are sent from the UK to Gibraltar where they are put in a bonded warehouse and then transferred into Spain. This is claimed to be their EU entry point from a third party country and as they are worth less than €22 the entry is claimed to be VAT free. Then they are shipped from Spain to the UK, also VAT free under the LVCR rules as an export from Spain does not have VAT charged on it and tax on arrival in the UK need not be collected due to the low value.
The legality of the scheme looks low though: placing the goods in a bonded warehouse in Gibraltar is clearly not the same as the goods being in Gibraltar for VAT purposes so that's problem number 1. Quite specifically bonded warehouses are for VAT purposes not considered to be geographically in the place where they are located so it looks likely for these purposes that the goods never legally enter Gibraltar and night therefore legally enter Spain from the UK. In that case VAT should be charged on import, I think.
Problem number 2 is that it looks very unlikely that the goods are individually imported in Spain so it is hard to see how VAT on import is avoided under LVCR: the bonded warehouse is probably essential to make this work then. And therefore, problem 3, if the goods have arrived in Spain VAT free inappropriately it is hard to see how the scheme can then re-export VAT free.
All those are issues for HM Treasury to address. I'm happy to supply them with information.
But what this does show is that the tac avoiders will not go away and HMRC should have put in place more comprehensive measures to tackle this problem earlier this year.
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Richard, LVCR is only granted by EU legislation at point of final importation. The point of final importation is the place to where the package is addressed. This means that in this case LVCR should only be granted to packages that are addressed to customers in Spain. It is not legitimate to claim LVCR in one member state on a package bound for another . EU law is very clear on this as importation into the EU (defined in the Principle VAT Directive) is not the same as ‘final importation’. Unfortunately we have spotted errors in National Legislation that is being exploited. The UKs legislation (1984 VAT Relief (Imported Goods) Order states that LVCR is granted to any consignment entering the UK below the LVCR threshold. This is an error. Its should state that LVCR is granted to any consignment where the place of final importation is the UK. That excludes any goods destined for other EU member states. HMRC appear to be dealing with this as a recent FAQ stated that HMRC are not allowing LVCR on goods bound for another member state and are taking this up with the Commission. If this is corrected across Europe then this kind of operation can’t work. Richard RAVAS
I wonder if the consignments are actually shipped or is it just the paperwork suggesting this is the case?
Interestingly the logistics companies providing this service seem to be invisible in Gibraltar or anywhere else. Something fishy going on…
have any companies moved to Switzerland?
There are hints of it, I think
what if some move there distribution there ?
If they really did I couldn’t argue
They don’t
Right..why would they move their distribution there for products manufactured and sourced in the UK that are intended for UK consumption ….for instance UK certificated Blu Ray discs. ?
They have but it also involves bonded warehouses and postal abuses (for instance mail is getting franked in Switzerland with a UK post mark and posted in the UK mail when it arrives in UK) . The issues are being looked at by the Commisson now.
I dont see how this would work either. It is expensive to ship to and from Gibraltar. An importation of bulk items back into Spain would just attract VAT in spain, right? Equally LVCR direct from Gibraltar to the UK doesn’t work since the Royal Mail impose an GBP 8 administrative fee.
Not sure where you heard about this Richard. I am also unsure about the bonded warehouse point however: how would Spain know that the goods have been in a bonded warehouse in Gibraltar, and why would that be relevant for Spanish VAT?
I heard it because the scheme is being sold
I’ve highlighted the issues, I hope….but people are trying to get round them, of course
You’re assuming they are playing by the rules
We have evidence of goods being cleared in bulk in jiffy bags given LVCR and then posted in mail within EU. Goods could be brought into Spain granted LVCR on an individual basis and posted in mail. This technically illegal under EU law but we have discovered National Legislation is faulty. The bonded warehouse arrangement is also confirmed. Good leave the UK in bulk go to a bonded warehouse where they are broken down and sent back in jiffy bags.
Peter you said “An importation of bulk items back into Spain would just attract VAT in spain, right?” No a Judgement called Har Vaessen in 2009 allowed bulk consignments of mail to be cleared and LVCR granted to each package as long as each package was individually consigned. Clearing bulk LVCR consignments is not an issue.